Livestock Analysis | December 15, 2021
Price action: February lean hog futures dropped 75 cents to $79.325, down from $81.025 at the end of last week. The April through August contracts fell 70 to 90 cents.
Fundamental analysis: Hog futures fell for a third consecutive day amid export demand concerns. China will raise import tariffs on most pork products next year amid the sharp increase in domestic production. Tariffs for most favored nations, including the U.S., will return to 12% on Jan. 1, from 8% currently. Chinese imports of U.S. pork are already down sharply from last year.
Hog futures are still up from six-week lows reached last week, and price declines should be limited by signs the cash market has established a seasonal low. The CME lean hog index fell 8 cents to $72.10 today but has risen seven of the past 10 trading sessions and will be up 20 cents tomorrow. February futures ended today with a premium of $7.025 to tomorrow’s index quote.
Pork cutout values fell $1.55 yesterday but jumped $4.87 early today to an average of $90.35 behind a gain of $19.00 in hams. But holiday ham buying is completed, which may limit further gains and could put pressure on ham prices moving forward.
Technical analysis: Bears have a near-term advantage, but recent price action suggests a market bottom is in place. The next upside price objective for bulls would be closing February futures above solid resistance at the November high of $84.675. The next downside objective for bears would closing February below solid support at the December low of $75.35.
What to do: Get current with feed advice.
Hedgers: You currently have all risk in the cash market.
Feed needs: You should have all soybean meal needs covered in the cash market through December. You are still hand-to-mouth on corn-for-feed needs.
Price action: Live and feeder cattle posted moderate to sharp losses today. February live cattle dropped $1.725 to $136.575, the lowest closing price since $136.40 on Nov. 17. January feeder cattle fell $1.15 to $163.425.
Fundamental analysis: Live and feeder cattle futures were pressured as funds liquidated long positions in both markets, a common theme across grain and livestock today. Part of the fund selloff was tied to ideas the Federal Reserve would more actively work to combat inflation, and the Fed indeed announced plans to do so soon after cattle markets closed.
Weakening cash fundamentals also pressured live cattle futures today. Cash cattle started trading around $2 lower than last week, though feedlot sales were limited. Traders expect the cash market to weaken further through year-end. Wholesale beef prices didn’t face nearly the price pressure this morning as was seen on Tuesday, but that market is still searching for a low. Weakening cash fundamentals gave traders a reason to lighten their market length.
Given the recent selloff, February live cattle are trading at a discount to the cash index. That’s unusual for this time of year, as futures would normally have at least a mild weather premium built into prices. But given the warm, dry conditions across the Plains, traders have removed all of the premium.
Technical analysis: Bears have the short-term upper hand. February live cattle futures extended the pullback from the late-November highs, giving additional signals an extended pullback is underway. Next support is the 100-day moving average near $136.105 and a 50% retracement of the rally from the October low to the November contract high around $135.84. The 10- and 20-day moving averages in the mid-$138 range are near-term resistance.
The technical picture isn’t as negative for April live cattle, as support at the late-November low is still intact for that contract.
What to do: Short-term protective hedges for fed cattle producers may be needed if recent lows are violated.
Hedgers: Carry all risk in the cash market for now.
Feed needs: You should have all soybean meal needs covered in the cash market through December. You are still hand-to-mouth on corn-for-feed needs.
